Minimum Distribution Requirements (IRC Section 4942)
A private foundation must pay out each year an amount equal to 5% of its net investment assets in "qualifying distributions". Qualifying distributions are defined as:
- Actual grants to qualified charities;
- Necessary and reasonable administrative costs to make those grants;
- Costs to provide direct charitable activities; and,
- Costs to acquire assets used in the conduct of the private foundation's exempt activities.
Failure to meet the minimum distribution requirement will result in a penalty tax assessed on the undistributed amount.
Amount of the tax:
- Excise tax of 30% of the undistributed amount
- Additional excise tax of 100% of the undistributed amount is imposed if the foundation does not make up the deficiency within 90 days of receiving notification about the deficiency from the IRS